Framatome Connectors OEN: Buy

Recommendation: Buy

B. Krishnakumar

AFTER the recent stock market slide, the share prices of quite a few fundamentally sound companies have been pushed to lower levels.

Long-term investors could use this as an opportunity to pick up equity exposure in such companies with reasonably strong growth prospects.

Framatome Connectors OEN is one such company that has a major presence in the telecom sector. Investors with a long term perspective could take exposure in the company. It is a major player in the connectors industry and has a technical-cum-financial collaboration with Framatome Connectors International of France. The connectors find application in the telecom sector, industrial and data communication segment, industrial electronics and defence.

It derives much of its revenues from the telecom sector, with ITI being its major client. The data processing machine (predominantly computers) segment is the next major revenue contributor for company. In 1999, the company forayed into the auto connector segment. As of now, about 75 per cent of the revenues are for accounted by the telecom segment.

The entry into the automotive industry would broadbase the company's revenue profile. It would also dilute the present earnings concentration in the telecom industry. The technical backing of the French parent is a major asset of the company. Globally, the Framatome Connectors International derives close to 35 per cent of the revenues from the telecom market while the automotive segment contributes 18 per cent.

Financially, the company's performance has improved steadily in recent years. The pick-up in activity in the telecom industry has been a key driver of earnings for the company. For the year ended December 2000, the turnover rose 33 per cent to Rs 60.24 crore, while the post-tax earnings more than doubled to Rs 12.36 crore from Rs 5.59 crore recorded the previous year. On the equity base of Rs 5.27 crore, the earnings per share work out to Rs 23.45. Apart from pick-up in demand, the growth in exports and the merger of TVS Berg with the company has also aided the company's earnings growth.

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After a sharp rise, the company's performance in the quarter ended March turned flat. The turnover rose 12 per cent to Rs 18.78 crore,while net profit rose about 21 per cent to Rs 3.52 crore. This growth slowdown could be explained by the global slowdown in the technology and telecom sector and slack flow of orders. However, the recent corporatisation of the DoT and the entry of private sector players is likely to push up demand for the company's products.

Given the country's relatively low tele-density and the rapid growth in the usage of telephony services, the future company's prospects appears fairly bright. Long-term investors could take exposure in the company at the current level of Rs 110.55.